Developments in Development

Kevin Lewis

July 03, 2010

The Pernicious Consequences of UN Security Council Membership


Bruce Bueno de Mesquita & Alastair Smith

Journal of Conflict Resolution, forthcoming



Nations elected to the United Nations Security Council (UNSC) as temporary members have lower levels of economic growth, become less democratic, and experience more restrictions on press freedoms than comparable nations not elected to the UNSC. Using regression and matching techniques the authors show, for instance, that over the two-year period of UNSC membership and the following two years during which a nation is ineligible for reelection, UNSC nations experience a 3.5 percent contraction in their economy relative to nations not elected to the UNSC. The detrimental effects of UNSC membership are strongest in nondemocratic nations. The authors contrast these results with the growing evidence that nations elected to the UNSC receive greatest development assistance.




The colonial roots of land inequality: Geography, factor endowments, or institutions?


Ewout Frankema

Economic History Review, May 2010, Pages 418-451



Land inequality is one of the crucial underpinnings of long-run persistent wealth and asset inequality. This article assesses the colonial roots of land inequality from a comparative perspective. The evolution of land inequality is analysed in a cross-colonial multivariate regression framework complemented by an in-depth comparative case study of three former British colonies: Malaysia, Sierra Leone, and Zambia. The main conclusion is that the literature tends to overemphasize the role of geography and to underestimate the role of pre-colonial institutions in shaping the colonial political economic context in which land is (re)distributed from natives to colonial settlers.




"Loans for Shares" Revisited


Daniel Treisman

NBER Working Paper, March 2010



The "loans for shares" scheme of 1995-6 - in which a handful of well-connected businessmen bought stakes in major Russian companies – is widely considered a scandal that slowed subsequent Russian economic growth. Fifteen years later, I reexamine the details of the program. In light of evidence available today, I concur with the critics that the scheme's execution appeared corrupt. However, in most other regards the conventional wisdom was wrong. The stakes involved represented a small fraction of the market; the pricing in most cases was in line with international practice; and the scheme can only explain a small part of Russia's increasing wealth inequality. The biggest beneficiaries were not the so-called "oligarchs," but Soviet era industrial managers. After the oligarchs consolidated control, their firms performed far better than comparable state Enterprises and companies sold to incumbent managers, and helped fuel Russia's rapid growth after 1999.




Culture and Institutions: Economic Development in the Regions of Europe


Guido Tabellini

Journal of the European Economic Association, June 2010, Pages 677-716



Does culture have a causal effect on economic development? The data on European regions suggest that it does. Culture is measured by indicators of individual values and beliefs, such as trust and respect for others, and confidence in individual self determination. To isolate the exogenous variation in culture, I rely on two historical variables used as instruments: the literacy rate at the end of the XIXth century, and the political institutions in place over the past several centuries. The political and social history of Europe provides a rich source of variation in these two variables at a regional level. The exogenous component of culture due to history is strongly correlated with current regional economic development, after controlling for contemporaneous education, urbanization rates around 1850 and national effects.




Do Call Centers Promote School Enrollment? Evidence from India


Emily Oster & Bryce Millett

NBER Working Paper, April 2010



Over the last two decades in India there have been large increases in outsourced jobs and large increases in schooling rates, particularly in English. Existing evidence suggests the trends are broadly related. In this paper we explore how localized these impacts are; this has implications for understanding how quickly information about these jobs diffuses. We use panel data on school enrollment from a comprehensive school-level administrative dataset. This is merged with detailed data on Information Technology Enabled Services (ITES) center location and founding dates. Using school fixed effects, we estimate the impact of introducing a new ITES center in the vicinity of the school on enrollment. We find that introducing a new ITES center results in a 5.7% increase in number of children enrolled; these effects are extremely localized. We argue this result is not driven by pre-trends in enrollment or endogenous center placement, and is not a result of ITES-center induced changes in population or increases in income. The effect is driven entirely by English-language schools, consistent with the claim that the impacts are driven by changes in returns to schooling.




A Million Dollar Exit from the Anarchic Slum-world: Slumdog Millionaire's hollow idioms of social justice


Mitu Sengupta

Third World Quarterly, June 2010, Pages 599-616



This article contests the characterisation of the popular and acclaimed film, Slumdog Millionaire, as a realistic portrayal of India's urban poverty that will ultimately serve as a tool of advocacy for India's urban poor. It argues that the film's reductive view of slum-spaces will more probably reinforce negative attitudes towards slum-dwellers, lending credibility to the sorts of policies that have historically dispossessed them of power and dignity. By drawing attention to the film's celebration of characters and spaces that symbolise Western culture and Northern trajectories of 'development', the article also critically engages with some of the issues raised by the film's enormous success.




Deals versus Rules: Policy Implementation Uncertainty and Why Firms Hate It


Mary Hallward-Driemeier, Gita Khun-Jush & Lant Pritchett

NBER Working Paper, May 2010



Firms in Africa report "regulatory and economic policy uncertainty" as a top constraint to their growth. We argue that often firms in Africa do not cope with policy rules, rather they face deals; firm-specific policy actions that can be influenced by firm actions (e.g. bribes) and characteristics (e.g. political connections). Using Enterprise Survey data we demonstrate huge variability in reported policy actions across firms notionally facing the same policy. The within-country dispersion in firm-specific policy actions is larger than the cross-national differences in average policy. We show that variability in this policy implementation uncertainty within location-sector-size cells is correlated with firm growth rates. These measures of implementation variability are more strongly related to lower firm employment growth than are measures of "average" policy action. Finally, we show that the de jure measures such as Doing Business indicators are virtually uncorrelated with ex-post firm-level responses, further evidence that deals rather than rules prevail in Africa. Strikingly, the gap between de jure and de facto conditions grows with the formal regulatory burden. The evidence also shows more burdensome processes open up more space for making deals; firms may not incur the official costs of compliance, but they still pay to avoid them. Finally, measures of institutional capacity and better governance are closely associated with perceived consistency in implementation.




Downsizing, wage inequality and welfare in a developing economy


Hamid Beladi & Chi-Chur Chao

Research in Economics, forthcoming



This paper focuses on the cost cutting effects of firm downsizing in a developing economy. Using a dualistic production structure to depict a developing economy, the impacts of downsizing on wage inequality and social welfare are examined. Downsizing is revealed to not only narrow the wage gap between skilled and unskilled labor but also to raise the level of manufactured output and reduce the unemployment ratio in the urban sector. These effects improve the social welfare of the economy.




Effects of oil price shocks on industrial production: Evidence from some oil exporting countries


Mohsen Mehrara

Energy Economics, forthcoming



This paper examines the effects of oil price shocks on industrial production in four oil exporting countries, namely Iran, Saudi Arabia, Kuwait, and Indonesia using annual data for the period 1970- 2004. First the Gregory-Hansen (1996) cointegration technique, allowing for the presence of potential structural breaks in data, is applied to empirically examine the long-run co-movement between oil price and output. Second, we test whether different measures of oil price shocks, including non-linear or asymmetric ones, Granger cause output. The results indicate a strong causality from oil price shocks to output growth for Iran and Saudi Arabia. Moreover, the oil prices-output relationship in these two countries appears more significant when asymmetric specifications are used to model the relationship between variables. In the case of Kuwait and Indonesia, however, none of oil proxies have any significant effect on output both in short and long run. The results confirm the relatively successful experience of countries such as Kuwait and Indonesia in the use of stabilization and savings funds and diversification of the real sector, respectively, to minimize the harmful effects of oil booms and busts.




Does international mobility of high-skilled workers aggravate between-country inequality?


Volker Grossmann & David Stadelmann

Journal of Development Economics, forthcoming



This paper analyzes the interaction of international migration of high-skilled labor and relative wage income between source and destination economies of expatriates. We develop an overlapping-generations model with increasing returns which suggests that international integration of the market for skilled labor aggravates between-country inequality by harming those which are source economies to begin with while benefiting host economies. The result is robust to allowing governments to optimally adjust productivity-enhancing investments which could potentially attenuate brain drain. Optimal public investment tends to decrease in response to higher emigration.




Trends in World Inequality in Life Span Since 1970


Ryan Edwards

NBER Working Paper, June 2010



Previous research has revealed much global convergence over the past several decades in life expectancy at birth and in infant mortality, which are closely linked. But trends in the variance of length of life, and in the variance of length of adult life in particular, are less well understood. I examine life-span inequality in a broad, balanced panel of 180 rich and poor countries observed in 1970 and 2000. Convergence in infant mortality has unambiguously reduced world inequality in total length of life starting from birth, but world inequality in length of adult life has remained stagnant. Underlying both of these trends is a growing share of total inequality that is attributable to between-country variation. Especially among developed countries, the absolute level of between-country inequality has risen over time. The sources of widening inequality in length of life between countries remain unclear, but signs point away from trends in income, leaving patterns of knowledge diffusion as a potential candidate.




Good Governance and Happiness in Nations: Technical Quality Precedes Democracy and Quality Beats Size


Jan C. Ott

Journal of Happiness Studies, June 2010, Pages 353-368



Average happiness differs markedly across nations and there appears to be a system in these differences. This paper considers the role of quality of governance, and in particular the role of technical quality as opposed to democratic quality. A comparison of 127 nations in 2006 shows strong correlations between the quality of governance and average happiness of citizens. The correlation between technical quality and happiness is +0.75 and the correlation between democratic quality and happiness is +0.60. Technical quality correlates with happiness in rich and poor nations, while democratic quality only correlates with happiness in rich nations. The quality of governance appears to be more important for happiness than the size of governments: the relation between quality and happiness is independent of size, while the relation between size and happiness fully depends on quality. The correlation between technical quality and happiness appears to be independent of culture; it exists not only in western nations, but also in Eastern Europe, Latin America, the Middle East, Asia and Africa. This indicates that technically good governance is a universal condition for happiness, and not just a western ideology. Democratic quality adds substantially to the positive effects of technical quality once technical quality has reached some minimal level.




Market imperfections, wealth inequality, and the distribution of trade gains


Reto Foellmi & Manuel Oechslin

Journal of International Economics, May 2010, Pages 15-25



Globalization increasingly involves less-developed countries (LDCs), i.e., economies which usually suffer from severe imperfections in their financial systems. Taking these imperfections seriously, we analyze how credit frictions affect the distributive impact of trade liberalizations. We find that free trade significantly widens income differences among firm owners in LDCs: While wealthy entrepreneurs are better off, relatively poor business people lose. Intuitively, with integrated markets, profit margins shrink - which makes access to credit particularly difficult for the least-affluent agents. Richer entrepreneurs, by contrast, win because they can take advantage of new export opportunities. Our findings resonate well with a number of empirical regularities, in particular with the observation that some liberalizing LDCs have observed a surge in top-income shares.




Geopolitics and the Genealogy of Free Trade Zones in the Persian Gulf


Arang Keshavarzian

Geopolitics, April 2010, Pages 263-289



Free trade zones have been championed by policy makers as important mechanisms for the "economic liberalisation" and "globalisation" of the Middle East. While a growing number of political economists have begun to investigate the performance of these projects, few have considered why states voluntarily limit their sovereign powers by establishing these liberalised territories. To address this question, this paper studies the Jebel Ali free trade zone in Dubai (UAE) and the Kish free trade zone in Iran, two of the earliest such projects in the region. Rather than being products of neoliberal ideology or pressure from advanced industrial economies, the essay argues that paradoxically these zones were developed by the Iranian state and Dubai emirate to project territorial sovereignty in turbulent geostrategic settings and moments as well as nodes to circulate rent to domestic and international members of ruling coalitions. The geostrategic and state-building logics informed when, where, and how these projects were developed. More generally, this analysis illustrates that the Middle East is neither absent from the process of globalisation, nor does it simply respond passively and reactively to this complex process. Free trade zones are an example of local strategies working in consort with international processes to fashion new forms of economic and political interconnectedness.




Economically Benevolent Dictators: Lessons for Developing Democracies


Ronald Gilson & Curtis Milhaupt

Columbia University Working Paper, March 2010



The post-war experience of developing countries leads to two depressing conclusions: only a small number of countries have successfully developed; and development theory has not produced development. In this article we examine one critical fact that might provide insights into the development conundrum: Some autocratic regimes have fundamentally transformed their economies, despite serious deficiencies along a range of other dimensions. Our aim is to understand how growth came about in these regimes, and whether emerging democracies might learn something important from these experiences. Our thesis is that in these economically successful countries, the authoritarian regime managed a critical juncture in the country's development - entry into global commerce by the transition from small-scale, relational exchange, to exchange where performance is supported by government action, whether based on the potential for formal third party enforcement or by the threat of informal government sanctions. Compared to a weak democracy, a growth-favoring dictator may have an advantage in overcoming political economy obstacles to credibly committing that rent seeking will not dissipate private investment. We explore this hypothesis by examining the successful development experiences of three countries in the late twentieth century: Chile under Augusto Pinochet; South Korea under Park Chung-Hee; and China under Deng Xiaoping and his successors. Although the macroeconomic policies and institutional strategies of the three countries differed significantly, each ruler found ways to credibly commit his regime to growth. Decades of law reform activity by the World Bank, IMF, and other international NGOs, along with a vast academic literature, assume that an impartial judiciary is the key to the transition from relational to market exchange. Our study reveals that a variety of alternatives are possible. We then consider a now familiar question raised about contemporary China: Does economic development inexorably lead to political liberalization? The conventional wisdom says yes, drawing support from the experience of Chile and South Korea. We show that the conventional wisdom overlooks important features of the Chilean and Korean historical experiences that bear directly on China. The same incentive structures that have propelled Chinese economic growth are likely to slow political liberalization.


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